Mirador International LLC v MF Global UK Ltd

This is a claim for an account following the termination of an Introducing Broker Agreement (“IBA”) in the foreign exchange market. The IBA entitled the Claimant to continued commissions after termination on accounts introduced to the Defendant. The Defendant contends that the Claimant has no right to an account both on the facts and also as a matter of construction of the IBA.

The Claimant (“Mirador”) is a company incorporated in Nevis and is a vehicle used by Mr Raymond Hachem to collect revenue for himself and his team of dealers. The Defendant (“Man”) is a large cash and derivatives broker-dealer based at Sugar Quay in the City of London. Mirador and Man entered into an IBA on 3 October 2003 as part of wider arrangements, which proved short lived, by which Mr Hachem and his team moved to Man from another company. Mirador says that it introduced a customer, Dante Lido, to Man under the IBA and is therefore entitled to be paid for this account. Before turning to the facts, most of which are not in dispute, I summarise the relevant provisions of the IBA.

The IBA states in its introduction that Mirador has agreed to introduce potential customers to Man in accordance with the terms of the Agreement. Mirador, the Introducing Broker (defined as “IB”) is to be an independent contractor not describing itself as a representative or agent of Man except in limited circumstances. Mirador has a series of responsibilities set out in Clause 2 the most relevant of which are in Clause 2(a) and (b):

In Clause 3 headed “Introducing Potential Customers to Man” the parties agree amongst other things:-

Clause 7 deals with “Duration and Termination”. By 7a “The IB’s appointment shall commence on the date of this Agreement or such other date as the parties may agree.” The parties may terminate in various events including by one giving the other 60 days notice. Clause 8 “Consequences of Termination” provides as follows:-

Clause 12 is an entire agreement provision in conventional form. Clause 15 deals with interpretation. A “Customer” means “any individual or body of persons, whether or not incorporated, introduced by the IB to Man whether or not accepted by Man as a Customer”. By Clause 17 the IBA is governed by English law and the parties submit to the English courts.

Clause 5 is concerned with Man’s obligations to Mirador. Clause 5(b) provides that “Man shall pay IB the fees, commissions and/or rebates set out in Schedule A to this Agreement as may be amended from time to time”. Schedule A provides in relevant part:-

Schedule A also deals with more detailed matters relating to fees and provides for “associated employee and other costs” to be debited from the fees/income pool. These include 100% of all the employment costs of the individual members of the team and 50% of the travel and entertainment expenses, any special market data and/or trading screens and of any errors for which the team are directly responsible.

Mr Hachem has worked as a Foreign Exchange Dealer since 1991 and over the years built up a number of clients and a small team of dealers to help him meet their requirements. In January 2001 he moved with his team to IFX Markets Ltd (“IFX”) agreeing a structure which also involved an IBA with another Nevis company called Byblos International Fund LLC (“Byblos”). It is apparently common in the foreign exchange and other financial markets for a small team to operate from the premises of a larger broker as a sort of business within a business. Individual members may have close relationships with particular clients but they work together and share the rewards between them. The members of the team are employees of the broker, in this case Man, and receive a comparatively low basic salary by City standards, in the present case between £30,000-£50,000 per annum and other benefits. These employment costs are however deducted from the revenue generated by the team which itself is split in some agreed way between the employer and the team. The members of the team decide how to divide its profits. In this case the arrangement was apparently unconventional in that usually Introducing Brokers are authorised to trade, employ traders and take and execute orders. Mirador, like Byblos before it, had a more limited role and did none of these functions.

Man contends that this unusual structure was simply a tax vehicle for Mr Hachem. Mr Hachem has a British passport and lives and works in London. He received from IFX, and it was envisaged that he would receive from Man, a small salary on which he would pay tax. Profits which would have otherwise gone to the team would be paid to the vehicle company. Byblos and Mirador as companies incorporated abroad and not controlled by Mr Hachem (it seems that his brother in Beirut is at least nominally in charge) receive under the IBA income which might otherwise have gone to Mr Hachem; but they do not pay tax in the UK on that income. The income is apparently then available to Mr Hachem when he goes abroad, for example when he stays in his house in France.

Many would see it as an affront in a decent society that someone living and working here should as a result of these arrangements in practice pay a lower rate of tax on a very high income earned in the UK than ordinary people do working for much less. But the arrangements apparently have the approval of Her Majesty’s Revenue and Customs and of the last and present governments. Mr Hachem is entitled to take advantage of these opportunities and the implicit criticism of them by Man in cross examination seemed misplaced given its own facilitating role.

There were three members of the team working with Mr Hachem. Ms Ruth Elmer traded foreign exchange and managed clients. Her brother Mr Ian Elmer, who has some 30 years broad experience as a stockbroker, ran amongst other things, the CFD trading. Mr Jason Xenophontos was the most junior member but had several years’ experience as a foreign exchange and money market dealer working at Bank of Cyprus.

Allocation of the profits generated by the team was informal. Individual members developed relationships with particular clients but worked together sharing the rewards. The team members would know the dealing activity within their small group and thus how well or badly the business was doing. Distribution of pay and bonus followed discussion within the team but was ultimately a decision for Mr Hachem which he would take having regard to the need to motivate and keep together the members of the team.

I now turn to the circumstances in which the parties reached their agreement. By the middle of 2003 developments at IFX led Mr Hachem and his team to seek to move to another firm. Mr Hachem led that quest. There was a meeting at lunch on 25 July between Mr Hachem and Mr Kevin Davies, President of Man and Mr Christopher Smith the Executive Chairman. Mr Hachem had met Mr Davies some years before when the latter had expressed interest in his business. It is clear that things at the lunch went well, Mr Hachem looking for a new home for his team and Man welcoming the opportunity of developing business much of which was from the Middle East. Mr Hachem disclosed details of his clients, the structure of his business and the IBA then in place. Mr Hachem was the only witness at trial present at the lunch. He recalls being offered a job by Mr Davies and later spending time negotiating terms with Mr Smith. The progress of discussion is set out in drafts and letters on 29 and 31 July 2003 and this led to a written offer of employment to Mr Hachem on 4 August. This provided in relevant part as follows:-

“Dear Raymond

Following your meeting with Kevin Davis and me, I am delighted to offer you a position with Man Financial as a Divisional Director with full responsibility for co-ordinating the Brokerage Divisions Middle East sales and business development reporting to Simon Healy/Christopher Smith.

It is intended that you will be based in our West End offices at 33 St James’ Street. From this location you will solicit margin foreign exchange, CFD and futures business and any other product offered by Man from a variety of high net worth and corporate clients.

You will be paid a salary of GBP50,000 per annum. This salary, and any employment costs thereon, will be treated as a draw against your income pool.

Your income pool will be credited on the following basis:

•

50% of any mark-ups achieved over and above prices quoted by Man’s FX dealers or approved outside counterparties;

•

50% of any net commissions over and above third party costs such as exchange fees, NFA fees, clearing house fees, pit-brokerage (where relevant) and transfer pricing charges (where relevant).

(Pit brokerage fees arise when clearing business on the Chicago or New York exchanges. Transfer pricing is as follows: $0.50 for all London and Chicago floor-based commodity and interest rate products; $0.65 for all Chicago floor-based stock indices products; $0.65 cents for all NY based floor products where Man has a presence. Where you transact electronically traded futures products on screens provided by Man, transfer pricing charge of $5 per ticket).

Your income pool will be debited on the following basis:

•

100% of the employment costs associated with any staff you recruit. (These staff shall be referred to as the “Team”);

•

50% of any errors for which you or your team are directly responsible;

•

50% of any pre-agreed travel and entertainment undertaken by you and your team;

•

50% of the costs of any market data and/or trading screens requested and utilised by you and your team over and above the cost of the standard trading requirement for each member of the team.

With regard to CFD/structure trades “traded” with the desk, I would confirm rates to be 2½ basis points for trading and 32½ basis points for funding. In respect of any proposed FX trading these would be subject to rates and structure as advised by Louis Vitta, our Global Head of FX in New York”.

The next day employment offers were also made to Ms Elmer, Mr Elmer and Mr Xenophontos. These offers were part of broader arrangements which were to lead to the IBA between the parties. There is a dispute to which I will return about whether the vehicle for the IBA was to be Byblos or Mirador. These arrangements were put in hand by Mr John Beckwith, Head of Human Resources at Man but in time the Compliance Director Mr Richard Seaman became involved in putting together the terms for the IBA. Mr Seaman was also in contact with Mr Hachem’s accountant Mr Keith Gregory of Kingston Smith LLP. On 6 August Man’s documents department, presumably under the impression that Byblos would be the company entering into the IBA sent to it a pack comprising draft agreement, prospective client questionnaire and procedure manual. At the same time Mr Elmer accepted his employment offer and he and Man signed his application form for the FSA. On 11 August Mr Elmer started work at Man and his rather limited initial duties included preparing prospective client assessments. He did such an assessment for a Swiss bank in a form which stated the client was to trade only CFD’s and securities and describing the Introducing Broker as Byblos. On 19 August Mr Elmer completed a client assessment for Dante Lido stating that the client was to trade amongst other things foreign exchange and CFD’s. Man wrote to Dante Lido enclosing an account opening document referring to the matter having been introduced by Byblos. On 20 August Man sent a draft letter offering Mr Hachem employment as Divisional Director of Man Financial. On that day Mr Hachem signed an FSA application form. On 21 August Mr Xenophontos signed his employment offer letter and an FSA application form. On that day Man received a response to a Dunn and Bradstreet report it had sought for Byblos. Around that time Mr Seaman appears to have been informed that Mirador was to be the Introducing Broker. He apparently directed that Mirador was to be set up as “introducer” in “the database”. But shortly after that Mr Hachem received and amended a draft IBA between Man and Byblos without changing the name of the company to Mirador. On 30 August Ms Elmer accepted her offer of employment.

Mirador was incorporated on 5 September 2003 and a deed of appointment making Mr Hachem Manager of that company was entered in to. On 10 September Mr Hachem resigned from IFX. On 16 September an amended draft letter of employment was sent to Mr Hachem. On 17 September Mr Seaman and Kingston Smith were in correspondence about Mirador’s documents and what was to become the IBA. Mr Xenophontos started to work at Man on 22 September following his honeymoon.

On 30 September 2003 the FSA informed Man of an anonymous letter about Mr Hachem. The terms of that letter are not directly relevant but they were seen to be likely to result in a delay of 3 months while the FSA investigated. During that period Mr Hachem would not be able to conduct investment business in Man’s name. It is common ground that Man’s response to this fact was constructive and businesslike. Another set back occurred on 2 October when Mr Elmer resigned from Man and signed an FSA de-registration form. His FSA application had led to the disclosure of an HMRC judgment of which Mr Elmer was unaware. Mr Elmer resigned first to sort the matter out, which he did without difficulty, and secondly because he decided this was the opportunity to leave the City after many years and to try something else. By this stage authority had been obtained to enable the positions and cash balances of Mr Hachem’s three largest clients to be transferred from IFX. Those accounts did not become active however probably because Man was unable to agree that these clients should trade on a 2% rather than a 3% margin. On 10 October Ms Elmer started work at Man. By 6 October Man had received money into Dante Lido’s CFD and foreign exchange accounts.

On 1 December 2003 Mr Hachem’s registration difficulties with the FSA were resolved. He never accepted his employment contract. Mr Hachem says that he was rebuffed whenever he tried to contact senior people at Man about joining the company. He recalls that early in 2004 he concluded that he would have to look elsewhere for a job. In the Defence Man pleads that it revoked the offer of employment during a telephone conversation in December 2003 or January 2004. But Mr Beckwith who is said to have made the call was not a witness and there is no evidence in support of this claim, which I reject. In his closing submissions Mr Richard Slade QC for Man suggests that the job offer “just fizzled out” a description which Mr Darling QC for Mirador does not dispute.

On 29 January 2004 Man terminated the IBA by notice. On 2 February 2004 Mirador sought a statement of what was due on its commission account. Man did not reply. In 2006 Mirador learned that substantial sums might be in issue. It pursued the matter in March and then by solicitors in November. Man did not reply until 12 December 2006 saying that it could not locate any relevant accounts. In February 2007 Man denied that Mirador had introduced any accounts and stated that nothing was due.

Ms Elmer left Man in February 2004. Mr Xenophontos remained however and his terms of employment at Man changed. From 1 February 2004 he started to receive 35% of the net brokerage generated from the accounts which his clients, including Dante Lido, generated. That share was increased to 40% in October 2004. Mr Hachem himself moved to ADM Investors Services International Ltd where he has remained ever since.

Mirador claims that it is entitled to unpaid commission under the IBA for the substantial number of transactions carried out by Dante Lido with Man. Man responded that Dante Lido was not introduced by Hachem’s team but by Mr Xenophontos acting on his own behalf. Man also claims that if Dante Lido was introduced by the team the introduction took place before the IBA had been entered in to. The IBA does not entitle Mirador to commission when the introduction proceeded the date of the IBA. Man also argues that the IBA does not apply to CFD trading only to foreign exchange.

Until the cross examination of Mr Xenophontos towards the end of the trial Man contended that Dante Lido opened an account in early October 2003 not as the result of an introduction from Mr Hachem’s team but through the personal intervention of Mr Xenophontos who had earlier introduced the same client to IFX. Mr Xenophontos supported that position in his witness statement describing Dante Lido as “my client”. In cross examination however he said this

Man has now accepted that position so it is unnecessary to evaluate what had been until that point the main factual issue in the case. Mr Xenophontos had indeed made the first contact with Dante Lido following a request to him from Mr Hachem to try and get business from the Bank of Cyprus. Mr Xenophontos had been successful as part of being a member of Mr Hachem’s team. Further Mr Hachem himself had developed a working relationship which still continues with Mr Maxim Zakharchenko, the principal of Dante Lido.

As Man now accepts that Dante Lido was not introduced by Mr Xenophontos acting on his own behalf the relevant factual disputes between the parties are more limited. Further other differences about the facts seem more significant to one or more of the parties than they do to me. A further reason why the oral evidence is of limited significance is that many of the relevant events are not of themselves particularly striking or memorable and took place more than seven years ago with no reason for witnesses to gather their thoughts together until the last two of those years. These recollections will understandably be somewhat unreliable.

Mirador called as witnesses Mr Hachem, Ms Elmer and Mr Elmer. Mirador also submitted a witness statement of Mr Keith Gregory from Kingston Smith. Mr Gregory was unable to give evidence because he underwent invasive surgery following a heart attack towards the end of January. Man called Mr Seaman, Mr Xenophontos and Ms Sharon Heath. As I have pointed out the factual dispute reduced significantly during the evidence of Mr Xenophontos. The views set out in his statement about the significance of particular clients within the team differed strongly from the recollections of Mr Hachem and Ms Elmer and Mr Elmer. There remained disputes about why Mr Hachem never accepted offers of employment with Man and related matters which seemed to me irrelevant to the issues. The only area where live evidence was, by the end of the trial, of much relevance was the question of when and in what circumstances Mirador became and was accepted to be a party to the IBA.

Mr Hachem seemed to me an essentially truthful witness who prevaricated from time to time when skilfully cross examined. To some extent this was because while Mr Hachem speaks excellent English it is not his first language. It also seems to me that Mr Hachem is mistaken in his apparently clear recollection that he told Mr Smith in July 2003 that Byblos would not be the Introducing Broker. Few witnesses would remember such a comparatively insignificant point after so long. Mr Hachem may have said this but his memory that he did is probably mistaken. The evidence of Mr and Ms Elmer was clear, straightforward and obviously truthful. Neither has any direct connection with Mr Hachem and both have been detached from the financial markets for some years.

For Man Ms Heath gave evidence briefly about the account opening processes and documentation that Man operated during the relevant period which were complicated somewhat by the acquisition of GNI Ltd and the need to integrate its business, particularly that for CFDs into that of Man. Her evidence was clear, helpful and completely truthful.

Mr Seaman was an unsatisfactory witness. He was Man’s Compliance Director until he left the company in 2009. He is an experienced and intelligent professional. His two witness statements appear to have been prepared from what Mr Xenophontos described as a “pack” of material supplied by the lawyers. Mr Seaman exhibits some of the documents in his witness statements and makes submissions about them. Witnesses often face a choice between being loyal to a misleading or tendentious statement substantially prepared by their employer’s lawyers and telling the truth. Most take the latter course most of the time. Mr Seaman did not. He refused to acknowledge obvious inconsistencies and stuck to his statement regardless. This produced such answers as “I am standing by my statement” and “you can draw that conclusion”. I mention just two examples. Mr Seaman appeared to see no inconsistency between on the one hand accepting in evidence that the IBA which he had signed was operative and in stating in his witness statement (paragraph 25) “… the discussions between Mr Hachem and Man ended and as a consequence the IBA never became operative”. Mr Seaman referred to an email of 12 September 2003 headed “Bante Liodo Financial Ltd” and to his discussions with Mr Gregory and Mr Hachem and suggested that because neither mentioned this client to him he did not think it was a client which the Introducing Broker intended to introduce to Man. This improbable conclusion was reached by extrapolating from the email and drawing an unwarranted conclusion from discussions which were in any event rather different from what Mr Seaman claimed to recollect.

Mr Xenophontos gave evidence having served two witness statements. These also contained submissions about matters about which Mr Xenophontos would not have had direct knowledge. For example he exhibits and refers to the resignation letters of Mr Elmer in October 2003 and Ms Elmer in February 2004. It was however to Mr Xenophontos’ credit that he was not prepared to suggest that Mr Elmer and Ms Elmer were telling untruths and, when it came to it, he was frank about the real status of Dante Lido as a client of the team rather than of him personally.

It is not clear that Mr Hachem told Mr Smith that Byblos would not be the IBA vehicle. There is however no evidence that he did not. It was agreed that there would be a vehicle but I doubt that the senior figures at Man gave thought to what it was going to be. Mr Slade points to factors which he suggests show that the parties had Byblos in mind as the IB. Mr Hachem provided Man with Byblos’ Memorandum and Articles. Mr Gregory was involved with due diligence into Byblos before dealing with Mirador. Man made two enquiries about Byblos for Dunn and Bradstreet (but the second only because the first produced no coherent response). Man sent out a draft IBA naming Byblos on 6 August 2003 and at some point Mr Hachem made additions to a draft without altering the name of Byblos. These factors are however also consistent with a more likely situation in which Byblos’ details were provided to inform Man of the structure and at the outset little thought being given to the precise identity of the vehicle. In his statement Mr Hachem says “I was reluctant to use Byblos as the IB with Man; Byblos had issues with IFX regarding IFX under-accounting. I was pretty sure that that was going to result in some conflict between Byblos and IFX, and I did not want to bring that conflict to Man’s door at the outset of our relationship”. That seems to me a good reason for choosing a vehicle other than Byblos.

Mr Gregory of Kingston Smith says in his statement that his contact with Mr Seaman was very limited and addressed matters of due diligence and updates of Mr Hachem’s position following the problem with the FSA. He says that any contact he had with Man about Byblos would have been to assist with initial due diligence. Once it had been confirmed that Byblos was not to be used he would have simply passed on that fact and nothing more. Mr Seaman says that he had been in discussions for some time with Mr Gregory about the foreign exchange accounts of clients which Mr Hachem was intending to introduce to Man. He suggests that the negotiations were more substantial than Mr Gregory states. I have no reason to doubt the written recollection of Mr Gregory who did not give evidence because he is seriously ill. I prefer his account to that of Mr Seaman who, as I have explained, appeared to be willing to say whatever he felt would assist his former employer’s case.

There is however no evidence that the decision to use what became Mirador was taken until around the time of its incorporation. For example Mr Elmer named Byblos as the IB on Dante Lido’s client assessment on 19 August but Mirador was incorporated in early September and Man knew of the position by 11 or 12 September.

No contract was entered in to between Mirador and Man until 3 October 2003. It was however clear almost from the lunch on 25 July as between Man and Mr Hachem that his team would move over to Man using the same or a similar structure as had operated at IFX with the identity of the IB to be arranged. The context was that Man and Mr Hachem were moving to put in place that structure which would also reflect the more detailed arrangement set out in Man’s offer of employment to Mr Hachem of 4 August.

The parties gave effect to what had been agreed. The members of the team that left IFX, were offered employment by Man and, apart from Mr Hachem, joined that company. The process of opening accounts at Man for Mr Hachem’s clients moved forward. The parties proceeded as though the deal was going ahead. Man was content to accept Mirador by about 18 September. The contract was entered in to on 3 October after Mr Hachem’s issues with the FSA had arisen. There is no evidence that the identity of Mirador was seen by Man as important. Man’s Dunn and Bradstreet search was not concluded before 3 October. Schedule A of the IBA reflects the terms of the 4 August employment offer to Mr Hachem. Mr Xenophontos of Man, although not Mr Seaman, accepted that once Mr Hachem had nominated Mirador as the IB Dante Lido’s introduction had been made by Mirador to Man.

Mr Seaman appeared to accept in evidence that if an introduction was made by an IB before the signing of an IBA the income from that client would be held until the agreement had been signed at which point the money would be credited to the IB.

Dante Lido’s foreign exchange account at Man was opened on 3 October and its CFD account subsequently.

Mr Darling and Mr Banner put their case as follows. Clause 5(b) does not limit the IB’s entitlement to commission to that on transactions undertaken by clients introduced. But as a matter of commercial sense that must have been the intention of the parties. Schedule A does not limit entitlement to commission earned in respect of foreign exchange transactions alone, or to those undertaken for the major clients only. The schedule does not limit entitlement to commission on CFD transactions. Moreover Schedule A is taken from the text of the offer letter of 4 August 2003 which specifically envisages that CFD transactions will be part of the arrangement.

The IBA does not define what is meant by an introduction. Mr Hachem and Ms Elmer say that it is understood to mean the introduction of money by the opening of account and not the introduction of a name. I say straight away that, as Mr Slade points out, that construction is inconsistent with Clause 3 of the IBA which deals with the introduction of “potential Customer”. That approach also seems inconsistent with the natural meaning of introduction in the context of a principal and an agent. Even if that be right Mirador contend that the steps that led to Dante Lido’s accounts being opened were undertaken by the team for its benefit as well as that of the client. Given that Mr Hachem was able to nominate an IB to fit into the structure that he had agreed with Mr Smith the acts of the team can and should be attributed to Mirador once it became the nominated IB. Mirador contends that on 3 October 2003 neither side would have contemplated that the company’s date of incorporation would have the slightest relevance to anything. The IBA contains no provision expressly dealing with introductions made prior to it being entered in to. The parties cannot objectively have intended that clients whom the team were able to move over before the IBA had been entered in to should be excluded from its scope while those moved more slowly should be within it. If that had been the common intention those on the Mirador side would have taken any clients introduced prior to signature elsewhere.

Mr Slade QC contends as follows. The letter of 4 August was primarily an offer of employment to Mr Hachem which was not accepted and is not relevant to construction of the IBA entered into between different parties. The parties had Byblos specifically in mind until after Mirador’s incorporation. The IBA was not drafted with Dante Lido in mind. Steps had been taken in August 2003 to transfer the Dante Lido account to Man for both foreign exchange and CFD. The IBA does not expressly cover this. This was because the potential clients to move over were not Dante Lido but the three large foreign exchange clients of Mr Hachem. The details of the IFX and Byblos arrangements are irrelevant to the construction and because they are not facts known to both parties to the agreement. Details of the negotiations in July and August are inadmissible as an aid to construction of the IBA. Even if some sort of agreement was made between Mr Hachem and Man this is not relevant to a later contract between different parties and in an action where Mirador is the only Claimant.

The introduction of Dante Lido took place on 19 August 2003 when Mr Elmer completed the prospective client assessment. Under the IBA an introduction can take place long before the potential customer is ready to trade. The IB has no right to payment for fees earned in the period before its appointment. Clause 7(a) is explicit that the appointment will commence “on the date of this agreement”. Clause 8(c) relates to accounts introduced to Man “either by the IB or by one of the IB’s clients or contacts”. There is no provision for any entitlement on accounts introduced before the IB came into existence. It would be commercially absurd for Mirador to have an entitlement to commission on accounts for which it can claim no responsibility at all. It is illogical to suggest that Mirador can have been responsible for introductions made by Mr Xenophontos or Mr Elmer on behalf of the team at a time when neither knew anything about Mirador.

Mr Slade also submits that the claim needs to be seen in context and not attract an inappropriately sympathetic approach to construction. The claim is described as an “obvious after thought.” If Mirador’s claim were to succeed Man would be obliged to pay commission on Dante Lido’s trade twice over having already paid Mr Xenophontos under his employment contract. Further if Mirador’s claim were to succeed then it would gain a windfall by reason of not having to pay bonuses to the team. Moreover, there never was a time when the structure set out in Schedule A actually operated. It did not operate because Mr Hachem never joined Man and two other members of the team left. If the team had ever become operative at Man the matter could no doubt have readily been sorted out between Man, Byblos and Mirador.

The construction or meaning of a contract is what a reasonable person with all the relevant background knowledge of the parties at the time when the contract was made would have understood them to mean by the language of the contract – Chartbrook Ltd -v- Persimmon Homes Ltd [2009] 1 AC 1101 and ICS Ltd -v- West Bromwich Building Society [1998] 1 WLR 896. I do not repeat the well known principles but, in this case I bear particularly in mind that evidence both of pre-contractual negotiations and of subsequent conduct is inadmissible for the purposes of construction. Furthermore in Chartbrook Lord Hoffmann recognised that it would not be inconsistent with the English objective theory of contractual interpretation to admit evidence of previous communications between the parties as part of the background which might throw light on what they meant by the language used but he set out policy reasons why this material remained inadmissible. In this case if the offer letter of 4 August 2003 were admissible to construe the IBA it would be very clear, because of the explicit references to CFD in the letter and its close similarity to Schedule A in the IBA, that CFD’s were included within the IBA. The letter of 4 August was not strictly part of the negotiation between the parties to the IBA. The letter makers an offer to a different party. I disregard the letter because even if admissible it shows only that Man offered to Mr Hachem terms that include CFDs using language that later appeared in the IBA. Conceivably Man or Mirador agreed to exclude CFDs from their deal two months later.

The background available to both parties (that is to say Mirador and Man) was that an IBA was to be entered in to to give effect to the movement by Mr Hachem and his team from the structure within which they operated at IFX to the same or very similar arrangement at Man. For that broad commercial objective to be achieved it was necessary for legally binding contracts to be entered in to, an IBA and various contracts of employment. The introduction of Mr Hachem’s clients was obviously a major attraction of the deal to Man. Preservation by Mr Hachem of his client following and protection from poaching was obviously important to him. I disregard the question of whether Clause 8(c) was specially tailored or part of a standard draft. The parties opted for a process of implementation that did not involve close co-ordination of the various agreements and which started without any of them having been entered into. While the IBA is a relatively formal agreement it was not negotiated between lawyers and the procedure adopted was less methodical than those one often sees in similar transactions. I have already accepted that the word “introduction” in the agreement should not have the special meaning argued for by two of Mirador’s witnesses. The question is whether an account which had been literally introduced to Man before 3 October should nonetheless be seen as one of the “accounts already introduced to Man” by the IB or by its clients or contacts within Clause 8(c). I bear in mind that Mirador did not come into existence until early September 2003 and was not itself directly involved until 3 October. I also bear in mind the importance of identifying and respecting corporate identity particularly in the context where this is being relied upon for Mr Hachem’s tax advantage. But it seems to me obvious that in the context in which the agreement was being entered into both parties would have read “accounts already introduced to Man” as including those introduced by the team to Man in the expectation of both that they would be customers of Mirador. It would be equally obvious that the parties could not have intended to draw a distinction between customers introduced as part of the transition process on 2 October and those introduced on 4 October. Had the agreement continued to operate it is inconceivable that Man would have suggested or Mirador accepted that commission should be payable in respect of the teams clients introduced after 3 October but not those whom it had brought on board before hand. It seems to me unnecessary to investigate detailed questions of quite when Dante Lido was introduced. Similarly it is unnecessary as well as inadmissible to rely on the pre and post contractual material on which Mirador has sought to rely. The broader merits points raised by Man do not carry matters further. First I am not adopting a sympathetic approach to the interpretation of the contract but reaching what seems to me to be the obvious commercial conclusion reading the text as a whole and in context. I am not substituting the court’s notion of what is reasonable for the parties’ intentions as derived from the contract read in context. There are two arguable interpretations of a provision the meaning of which is unclear on its face. One would produce an absurd result. I accordingly hold that Mirador’s interpretation is correct. Secondly if Man finds itself having to pay twice over it has only itself to blame. Man revised Mr Xenophontos’ terms to give him Dante Lido commission on 2 February 2004. On the same day Mirador asked for a commission statement. Man increased that commission in October by which time Mirador had been pressing Man for a response without success. Thirdly the question of any windfall depends upon what the parties agree or the court determines on the taking of an account.

It follows that there will be judgment for the Claimant. I shall be grateful if counsel will let me have a note of corrections of the usual kind, a draft order, preferably agreed, and a note of any matters they wish to raise at the handing down of this judgment not less than 48 hours before the hearing.

I am most grateful to counsel for their assistance in this case and to the solicitors on both sides for their faultless organisation.